War talk shakes Qantas raising
Sat "Weekend Australian" 7/9/02
War talk shakes Qantas raising
By David King and Steve Creedy
September 07, 2002
PLANS by Qantas to raise $200 million from retail investors next week have been thrown into doubt after the airline's share price yesterday tumbled to a new seven-month low.
The threat of a war in Iraq, higher fuel prices prices and the possibility of a third player entering the domestic airline market have conspired to send Qantas shares below $4 - well short of the $4.20 retail investors are being asked to pay for new shares.
The stock slump has been mirrored by other carriers, including potential Australian entrant Singapore Airlines, as investors have fled aviation stocks. Airline revenues have suffered badly during past conflicts as fearful passengers, particularly Americans, stop travelling.
On Monday, Qantas will start the second stage of a $800 million capital raising, opening a $200 million rights issue to retail investors that will run until the end of September.
At yesterday's close of $3.99, down 11c, the stock was trading about 5 per cent below the $4.20 offer price in the 1-for-8.2 retail entitlement offer. Analysts were concerned that a falling share price would make it hard for Qantas to raise the full $200 million, forcing the underwriters or institutional investors to pick up any shortfall.
Shaw Stockbroking head of industrial research Scott Marshall said that if the share price did not go up in the next two weeks, the success of the entitlement issue was "uncertain".
"They are asking people to invest in the stock at about 5 per cent above its current price," he said.
"It doesn't look as if it (the share price) is going to go up in the short term. It's a bit of an ask for retail investors to have to invest in a stock 5 per cent above its current price." The retail entitlement is underwritten by Macquarie Equities, UBS Warburg and Salomon Smith Barney to the tune of $100 million, with institutional investors likely to pick up the surplus.
Qantas successfully completed the $600 million institutional stage of its capital raising but since then the share price has fallen more than 12 per cent.
The airline plans to use the capital to expand its operations, buying more aircraft and taking a 25 per cent stake in Air New Zealand.
The rising oil price, driven in part by fears of a conflict in the Middle East, has contributed to the weakness in Qantas and other aviation shares.
Qantas spent $1.57 billion on fuel last financial year, up from $1.33 billion the previous year. But the airline has an effective fuel hedging policy which would allow it to offset some of the effects of rising fuel prices.
Qantas shares have also been hit by recent speculation of a third domestic carrier.
Singapore has been investigating domestic access at Australian airports and has made no secret of its continued interest in the market.
Those observers who believe Singapore could enter the market believe it is most likely it will set up a premium service on major trunk routes.